2020 (11) TMI 872 - AT - Income Tax

Capital gain computation - amenities charges claimed by the assessee as part of cost of acquisition of the flat - Stamp duty paid towards cost of acquisition and also the transfer charges paid to the society inclusion - HELD THAT - This issue had already travelled to the ITAT before. The ITAT had principally agreed with the assessee s claim but had directed the authorities below to examine whether the similar agreement had been entered for amenities by other flat owners. The objection of the authorities below towards the veracity of agreement for the amenities had already been rejected by the ITAT. Upon subsequent enquiry the AO got information that 33 of the flat owners have also entered into such amenities agreements. Despite this information the authorities below disallowed the assessee s claim by holding that the veracity of the same was not established. We note that the veracity of the claim was already established by the agreement already submitted by the assessee earlier which the ITAT has accepted. The matter was only remanded to find out the position of other flat owners. From the enquiry of the authorities below it came to light that 33 other flatters had entered into similar amenity agreement. In such circumstances in our considered opinion the authorities below should have followed the ITAT order and allowed the assessee s claim of amenities charges as part of cost of the position. This position is further fortified that the amenity charges had already been paid and the same was appearing in the balance sheet of the assessee. Accordingly, in our considered opinion the denial of the assessee s claim towards amenities charges paid as part of cost of acquisition is not sustainable. Accordingly set aside the orders of authorities below on this issue and decide the issue in favour of assessee.

Issues Involved:
1. Disallowance of indexed cost of acquisition in respect of amenity charges.
2. Verification of similar amenities agreements by other flat owners.
3. Correlation between agreements entered with different entities.
4. Denial of claim towards amenities charges as part of cost of acquisition.

Issue 1: Disallowance of indexed cost of acquisition in respect of amenity charges:
The appellant claimed long term capital loss after selling a flat but the Assessing Officer (AO) disallowed the claim of indexed cost of acquisition in respect of amenity charges. The AO observed discrepancies in the purchase cost details provided by the appellant and concluded that the flat was fully constructed at the time of purchase, hence additional claims for amenities were not acceptable. The CIT(A) upheld the AO's decision regarding amenity charges but directed to consider stamp duty and transfer charges. The ITAT, however, emphasized that if the builder undertook amenities work as per agreement, it should be included in the cost of acquisition. The ITAT directed the AO to verify if other flat owners had similar agreements for amenities, indicating incomplete construction. The appellant submitted relevant documents during assessment proceedings, asserting the regular practice of dividing purchase and amenities agreements. The ITAT's direction led to further inquiries by the AO, revealing that only 33 out of 128 flat owners had amenities agreements. Despite this, the authorities disallowed the claim, questioning its veracity. The ITAT, considering the established claim and subsequent findings, held that the appellant's claim for amenities charges as part of acquisition cost was justified, overturning the lower authorities' decision.

Issue 2: Verification of similar amenities agreements by other flat owners:
The ITAT directed the AO to ascertain if other flat owners had similar amenities agreements to determine the completeness of construction at the time of purchase. The appellant provided evidence of the practice of splitting agreements and submitted balance sheets showing payments for amenities. The AO's subsequent inquiries revealed that only 33 flat owners out of 128 had such agreements, contradicting the appellant's claim of a common practice. Despite this revelation, the authorities doubted the claim's veracity, leading to a dispute over the inclusion of amenities charges in the cost of acquisition. The ITAT, after considering the established claim and the findings of other flat owners' agreements, concluded that the appellant's claim for amenities charges should be accepted as part of the acquisition cost, emphasizing the need to follow the initial direction for verification.

Issue 3: Correlation between agreements entered with different entities:
The authorities raised concerns regarding the correlation between agreements signed with different entities, namely the builder and a group concern. The appellant failed to establish a clear link between the two agreements, leading to doubts about the nature and validity of the amenities charges claimed. The ITAT's focus on verifying similar agreements by other flat owners aimed to determine the standard practice and the necessity of including amenities charges in the cost of acquisition. The lack of correlation between agreements raised suspicions about the justification for claiming amenities charges, requiring thorough examination and verification by the authorities.

Issue 4: Denial of claim towards amenities charges as part of cost of acquisition:
The appellant's claim towards amenities charges as part of the cost of acquisition was initially disallowed by the AO and upheld by the CIT(A), citing discrepancies in the purchase cost details and lack of evidence for the claimed amenities expenses. Despite the appellant's submissions and the ITAT's direction to verify similar agreements by other flat owners, the authorities doubted the claim's veracity. The subsequent findings revealed that only a fraction of flat owners had amenities agreements, leading to a dispute over the inclusion of amenities charges in the acquisition cost. The ITAT, considering the established claim and the verification results, concluded that the denial of the claim was unjustified and ordered in favor of the appellant, emphasizing the need to follow the initial direction for verification and acceptance of amenities charges as part of the acquisition cost.

This detailed analysis of the judgment highlights the key issues, the sequence of events, and the authorities' decisions leading to the final resolution in favor of the appellant regarding the inclusion of amenities charges in the cost of acquisition.

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